Conning the IADC newsletters.

• Author: Campbell, D. Jeffrey
• Position: CONNING

International Association of Defense Counsel committee members prepare newsletters each month that contain a wide range of practical and helpful material. This section of the Defense Counsel Journal is dedicated to highlighting interesting topics covered in recent newsletters so that other readers can benefit from committee specific articles.

Protecting Manufacturers from Qui Tam Actions Under the False Claims Act

The federal government is aggressively pursuing criminal and civil claims against pharmaceutical and medical device manufacturers for practices that violate the False Claims Act ("FCA"). (1) The FCA provides that those who knowingly submit false claims to the government for payment are liable for treble damages, plus civil penalties, as well as possible exclusion from Centers for Medicare and Medicaid Services ("CMS") programs.

Federal prosecutors are taking advantage of a provision in the FCA that encourages whistleblowers to come forward with evidence of wrongdoing and file civil suits against violators of the FCA on behalf of the United States. (2) Lawsuits filed by such whistleblowers are known as "qui tam" lawsuits. Under the qui tam provision, whistleblowers who file an action on behalf of the United States can receive a portion of favorable settlements or judgments. (3)

Increasingly, pharmaceutical industry insiders are providing the government with evidence of wrongdoing. Much of the evidence involves illegal tactics to increase sales and market share, including off-label promotion and the use of bribes and kickbacks to induce providers to prescribe the company's products. Submitting claims to CMS for reimbursement of the cost of illegally-promoted products is a violation of the FCA.

Qui Tam Prosecutions

In October 2005, Swiss Drug maker Serono paid $567 million to settle claims under the FCA for improperly promoting, marketing, and selling its drug Serostim. (4) Serostim, a human-growth hormone, is used to treat "AIDS Wasting," a potentially fatal condition involving severe weight loss. Serono admitted that it had improperly marketed the human-growth hormone by supplying doctors with diagnosing software that had not been approved by the FDA. Serono also admitted to offering doctors all-expense paid trips to a medical conference in Cannes, France, in return for their writing new Serostim prescriptions. The Serono settlement is the third-largest FCA health fraud settlement in U.S. history and the largest prescription drug settlement to date. (5) The investigation was initiated in Connecticut by a former Serono laboratory employee who filed a qui tam claim under the FCA. Four other employees filed similar suits in other states. The five whistleblowers will share an award of approximately $51 million. (6)

Just in the last year, qui tam False Claims Act actions against the medical industry have returned approximately $1 billion to government treasuries. The largest recoveries have come from pharmaceutical manufacturers. For instance, in December 2004, Gambro Healthcare agreed to pay $350 million in penalties for violating the FCA by providing kickbacks to physicians who recommended unneeded tests and services. (7) In September 2005, GlaxoSmith-Kline paid over $150 million for violating the FCA through fraudulent drug pricing and marketing of two anti-emetic drugs, Zofran and Kytril. (8)

Powerful Financial Incentives for Whistleblowers

Congress included financial incentives for whistleblowers in the FCA to encourage individuals to come forward with evidence of wrongdoing. Once a qui tam lawsuit is filed, the government has 60 days to investigate before deciding whether to join the lawsuit. (9) Qui tam suits can move forward with or without government involvement. If the government intervenes, the whistleblower is entitled to 15 to 25 percent of the recovery. (10) If the government declines to intervene, whistleblowers may pursue the cases on their own and, if successful, may retain up to 30 percent of the recovery. (11)

The FCA also protects a whistleblower that files a qui tam action from being discharged, demoted, or harassed in retaliation for his or her actions. (12) Prosecutions are conducted without the knowledge of the company or the individuals involved. All qui tam cases are filed under seal and are not publicly available during the investigation by the government. (13)

Under the FCA, all employees, subcontractors, agents, representatives, shareholders, vendors, competitors, and clients are potential...